As part of the ’33 Act reform that became effective December 1, 2005, large accelerated filers and accelerated filers are now required to disclose – under new Item 1.B of Form 10-K – whether they have unresolved written SEC Staff comments on their periodic or current reports issued more than 180 days before the end of the fiscal year. These companies also must disclose the substance of any of the unresolved comments that they believe are material – and can include their position on the unresolved comments if they so desire.
The disclosures made so far vary quite a bit; some specify the number of unresolved comments and provide detailed information regarding the nature of them – other disclosures are much more general. And a few companies state their position regarding outstanding comments – for example, see this Form 10-K recently filed by Getty Realty Corp. (on page 11, the company describes its rebuttal to the Staff).
SEC’s 2007 Performance Budget
No big surprises in this 2007 Performance Budget for the SEC. Corp Fin’s rulemaking schedule is on page 6. As noted on page 12, the SEC expects to review 44% of total reporting issuers during ’07, down from 47% in ’06. On page 13, the SEC predicts a ramp-up of demand for searches of EDGAR filings – 600 million in ’07, nearly a 36% increase from the 379 searches in ’05 (ie. XBRL). And on page 19, referrals to Enforcement from Corp Fin continues to grow at a very healthy clip…
The Watchdog That Didn’t Bark
“The second report is a bit more interesting; it details some of the steps taken by firms to improve their quality controls. Among them:
– changing the organizational structure so that there’s separation of the audit performance function from responsibility for ethics, independence, client acceptance, and audit quality monitoring. (Seems so basic, you wonder why it had to be brought up.)
– adding internal guidance requiring more experience audit personnel review the contractst carry the most risk for material misstatement. (Another common-sense step.) – increasing the number and depth of the firms’ own inspections and evaluations of audits. (This refers to the fact that audit firms have their own internal auditing functions; they inspect how effectively the firm has carried out their engagements.)- changing the way partners are compensated and promoted by increasing the emphasis on technical auditing skills and decreasing the emphasis on “rain-making.”
– tightening up on the criteria for client continuation
There’s plenty more, but you get the drift: what were once habits are now recognized as vices. The dog didn’t bark this time; there’s nothing to bark about. The firms kept their end of the bargain and straightened their respective houses. But let’s hope the watchdog stays awake.”